I have Private Money, what now?

Question

Ok, some private money found me (hallelujah) but it's only 25k.

The person giving it to me suggests that I find the cheapest fixer upper I can to flip to a rehabber.....I just want to know if this is a good idea.....

Or should I find more money (maybe even partner with a trusted individual) and we get a house to rent out.....

I'M SO LOST...I just need advice on how to make the most of this 25k.

Crystal Smith · Answer

@Brittaney Woods- STOP.  DON'T DO anything w/ the $ yet.  What you should do right now is study before spending a dime of the $ you're getting from  your mother:

• Study/learn the real estate market around you & learn the numbers.  You're in a market where $25K could potentially be eaten up in one deal & you'll not meet the goals you set for yourself.  The notion that $25K can be used for multiple down payments may be true, but it may be for properties that won't cash flow.  You also need reserve if you're going to purchase rental properties.  
• Call some lenders & make sure you understand the underwriting requirements for the various loans available, whether you're going to buy & hold or flip.
• Join some REI groups in the area & network.  The objective- learn, establish some contacts & maybe a partner or two
• Regarding the recommendation to find the cheapest fixer upper to flip to a rehabber- Without knowledge of your market you may end up buying the cheapest fixer upper & end up owning it forever because a rehabber won't take it.

I guess my message is hold on to the money, get an education then make a decision on your strategy.

Account Closed · Answer

take a deep breath, and wait.  Keep doing research.  I'm so glad I didn't buy the first/ cheapest properties I looked at.  I didn't realize the intricacies of my market.  Sure there are properties in that price range, but they are not flipable.  Nobody wants to buy in war zones, even if the house looks amazing.  And if they do, they buy for 35k.  So you buy for 25k, put 10k in it, and sell for 35k minus fees, commissions, and promptly lose thousands for your efforts.  I can't afford to be a charity that revitalizes neighborhoods.  You need to know the market and exit strategy before you jump in.

Makenzie Kelly · Answer

Hi Brittany!!

Congrats on the money! So your mom gave you the money and told you to essentially find a property and wholesale it?  Is that what I'm reading?  Is she in real estate?  Or was it just a suggestion from her?

I totally and completely agree with everyone that is saying to do your homework.  I don't know how I would feel about losing money that my parents gave me if I didn't do my homework and tried my best. I think it just comes with different emotional attachments.  I'm a total daddy's girl and it would just break my heart if I let him down.

As a seasoned business owner my suggestion:

Step 1:  Be patient

Step 2: Do your homework

Step 3: Refer to Step 1

Step 4: Only, and only when the numbers make sense make a move. (Act out of logic versus emotion, feeling, ego or excitement.  The latter will fail you most of the time.)

Hopefully that helps.  =)  Best of luck to you!

Makenzie

Brian G. · Answer

How this PM found you without you having a deal first is confusing to me. I myself find it very dangerous to have money without a deal. Why? It is very easy to be complacent and purchase something just to buy it. Yes, there are people around that have the money first but trust me they are sharp-discipline hawks (seasoned people). I am local and this market is cut-throat. I invite that. I will hate for you to place your private funds into undesirable areas, confusing condos, rusty mobile homes or go with an unscrupulous "partner".   How is your experience on the field? Have you crunched through the local data to determine exactly what $25k can buy in your area? What will be your concept to understand repairs to then pitch a property to a rehabber? If you bring a rehabber and he smells you don't know your numbers he will capitalize on it and dominate the negotiation - you can bet on it and you almost force him to it. I am not trying to give you a hard time here... But if you are in Miami and you are not careful you can burn through $25k easily. What are the expectations from the entity that gave you this PM? When do they want their money back? Interest? The PM didn't give you any terms (interest, etc.)? That's another flag. More complacency. It is the burning fire sensation under your feet what will propel your critical strategies to greatness. The fear to lose that PM money. An idea, could be to leave the $25k untouched until you have a proven concept on how to get in and get OUT with a profit in your hand for you and your PM.

Greg Behan · Answer

@Brittaney Woods

options are fairly unlimited in the real estate investment world.  you could do multiple down payments or even find a multi family home that might fit your criteria.  Just remember to invest in a property don't just buy one.

Cynthia Scaife · Answer

congrats

But do get some comps on the area you are interested in so you know what the market is like and make smart purchases.

Brittaney Woods · Answer

Buy and hold? I had a realtor friend of mine tell me it would be a waste of time to buy and hold such a cheap property.....

Brittaney Woods · Answer

Hey, I mentioned a few posts up that the money is from my mom.

Darrell Shepherd · Answer

Read Krystal and Makenzie's posts about 4 times each...

I was about to suggest using some HM and use that as the down pay and holding costs to do a smallish flip to double it in a few months, but if you are new and your long term goal is buy and hold, then I'd start shopping the market for median priced rental houses and use as little of that as possible for a down payment on something and keep as much in reserves as possible.  As suggested a 2-4 unit might fit nicely.  The worst thing you can do is put all $25k in one property right away.  Things never go in real life like they do when you are looking at the numbers...

You really dont need $25k to wholesale , but if you dont know what you're doing you can piss a LOT of money away marketing when you dont know how to convert leads or talk to sellers or target your marketing.

I'd actually invest a couple grand of that in getting a RE license and start working for a good agent while you learn this stuff.  Its not rocket science, but there is a 95% failure rate and IMO, much of that is from people not spending enough time and money on education (which leads to doing dumb things and running out of/losing money).

Account Closed · Answer

What you do need to do first is find a good real estate property and purchase that property under 25k.

I have Private Money, what now?

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